Economics for Business: UK Housing Market Analysis and Policies

This report provides an in-depth analysis of the UK housing market, focusing on the period between 2006 and 2016. It examines various factors influencing housing prices, including GDP growth rate, unemployment rate, interest rates, consumer confidence, affordability, and demand. The report also investigates the impact of government schemes like 'Help to Buy,' 'Shared Ownership,' and 'Starter Homes' on the housing market. Through the analysis of these determinants, the report aims to provide a comprehensive understanding of the fluctuations in the UK housing market and the effectiveness of governmental policies in enhancing the welfare level of the country's residential sector. The report concludes by summarizing the key findings and offering insights into the complex interplay of economic factors and government interventions within the UK housing market.

Running head: ECONOMICS FOR BUSINESS
Economics for business
Name of the student:
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Executive summary:
United Kingdom is one of the developed nations in the world that has evolved itself through
considerable amount of market orientation in its economy since last two centuries. With raise
in the economic growth of the nation, christened through the industrial revolution of 18th
century, UK has faced enhanced pressure in its industrial sector. Rise in population through
backhand effect guided the economy to have better scope to withstand in the competitive
world. This report is aimed to discuss the various factors that have affected the UK housing
sector. In addition to this, this report is targeted to discuss the effect of the recent housing
policy initiatives by the UK government in order to enhance the welfare level of the country’s
residential. Through detailed analysis of the UK housing market it has been found that
various influential factors are there that has caused the fluctuation in the UK housing market.
One of the major factors that have caused the recent fluctuation in the UK housing market is
the rise in housing price in the country over the various regions. Amalgamation of the rise in
demand leading to price rise of the houses in the country has caused the fluctuation; however
several governmental policies have eased the situation. To conclude, it can be stated that over
the time there has been various fluctuation in the UK housing market, and it has to some
extent enhanced the welfare level through government housing policies; however whether it
has totally attained the desired outcome or not, it is subjective.

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Table of Contents
Introduction:...............................................................................................................................3
Determinant factors of price of house in UK from 2006 to 2016:.............................................4
GDP growth rate:...................................................................................................................4
Unemployment rate:...............................................................................................................5
Interest rate:............................................................................................................................7
Consumer confidence:............................................................................................................8
Affordability range:................................................................................................................9
Demand of the houses:...........................................................................................................9
Impact of governmental schemes on housing market in UK:..................................................11
Help to Buy:.........................................................................................................................11
Shared ownership:................................................................................................................12
Starter Homes:......................................................................................................................12
Conclusion:..............................................................................................................................13
References:...............................................................................................................................15

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Introduction:
United Kingdom is one of the developed nations in the world that has evolved itself
through considerable amount of market orientation in its economy since last two centuries.
According to the nominal GDP growth the country stands as the sixth largest economy and
when the Purchasing Power Parity is considered, then the economy is the ninth largest in the
world (Taylor 2016). Higher economic growth over the period of the nation has been
germinated through periodical development of the country’s infrastructural development
leading it towards the sustainability. Over the year the nation has faced immense
development leading it to become the second largest economy in the European Union (EU)
that has aided the UK to become where it is now. This immense growth in the UK economy
has helped the nation to curtail various macroeconomic variables, which has provided it
required sustainability and growth prospect (Spash 2014).
With raise in the economic growth of the nation, christened through the industrial
revolution of 18th century, UK has faced enhanced pressure in its industrial sector (Burawoy
2015). In addition to this economic prosperity of the country has provided it an upward rise in
the population of the country. Rise in population through backhand effect guided the
economy to have better scope to withstand in the competitive world. One of the major factors
that have aided the country to become where it is now is the changing dynamics in the
housing sector (Wilcox and Perry 2014). It has acted as the stimuli for the economic growth
of the country. Over the time, there has been immense amount of fluctuation in the housing
sector of the UK; however, a vast amount of fluctuation can be observed during the 2006 to
2016 session. Considering this scenario, this report is aimed to discuss the various factors that
have affected the UK housing sector. In addition to this, this report is targeted to discuss the
effect of the recent housing policy initiatives by the UK government in order to enhance the
welfare level of the country’s residential.

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Determinant factors of price of house in UK from 2006 to 2016:
Various factors are there that has caused the fluctuation in the UK housing sector. For
instance, over the time factors like housing supply, housing demand, affordability, GDP
growth rate and income has been the major factors that caused fluctuation in the UK housing
sector (Sa 2015). Considering the given time scenario of 2006 to 2016 it can be stated that it
was one of the golden age of the UK housing sector. During this time the market has faced its
highest growth as well as faced highest amount of booking for the new houses too. Well,
moving forward this section will elaborate the various determinants of the factors of price of
the UK housing sector.
GDP growth rate:
One of the main factors that determine the UK housing price is the GDP growth rate.
According to the economic theories, if there is rise in economic growth rate, then it will lead
to rise in the national income too (Pigou 2017). With better national income it will be easy for
the citizen to buy new houses. One the other hand, if there is rise in national income, then it
will lead to rise in the demand, which ultimately cause in the rise in price too. Thus,
economic growth can lead the economy towards a social dilemma, where enhancing price and
rising demand take at same time and the price will be determined whether the supply demand
equilibrium takes place.

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2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
-5
-4
-3
-2
-1
0
1
2
3
4
Figure 1: GDP growth rate
Source: (Created by Author)
According to the figure 1, it can be seen that there has been huge fall in demand
during the Global Financial Crisis and next to this through government’s plan to buy home
scheme, it charged the market again. With reduced demand for the houses has leaded the
price of the houses to fall, however it was not affordable for the UK population (Gallent et al.
2017). Thus housing sector during the recession period faced huge amount of loss.
Unemployment rate:
Unemployment is another essential factor that aids determine the prices of the houses
in the UK. General economic theory argues that, if there is rise in the employment, then it
will lead to higher disposable income as well as enhance the purchasing power for the
population too (Porter and Kramer 2018). On the other hand, rise in unemployment can cause
a fall in the housing buying capacity of the UK population because it will lead the houses out
of affordability range of the country’s population. In

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2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
Figure 2: UK unemployment rate from 2006 to 2016
Source: (Created by Author)
Considering the figure 2, it can be seen that the country has faced fluctuation in its
unemployment level; however, it is sustainable in nature. According to the figure, on average,
unemployment level of the country remained with 5.0 to 5.33 mark that aids the economy to
pose a positive housing demand leading to rise in price and again it will crowd out the lower
unemployment rate’s benefit (Ons.gov.uk 2018).

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2006 Q1
2006 Q3
2007 Q1
2007 Q3
2008 Q1
2008 Q3
2009 Q1
2009 Q3
2010 Q1
2010 Q3
2011 Q1
2011 Q3
2012 Q1
2012 Q3
2013 Q1
2013 Q3
2014 Q1
2014 Q3
2015 Q1
2015 Q3
2016 Q1
2016 Q3
0.0
2.0
4.0
6.0
8.0
10.0
12.0
UK North London Wales
Figure 3: UK house price to earnings ratio
Source: (Created by Author)
From the figure 3, the picture of the aforementioned theory will be clear. The picture
has considered North area of the country as well as the Wales and the London and in addition
the UK price to earnings ratio. The picture depicts that Price to earnings ratio is highest in the
London that signifies the highest home buyer in the London. Besides this, it has also been
perceived that overall UK’s earning to price ratio of the houses is stable over the time with
little fluctuation during global crisis (Ons.gov.uk 2018). Otherwise it was stable and the
saturated earning level of the country has reduced the housing sector’s growth too.
Interest rate:
Interest rate is the essential factor that determines the price. There have been certain
governmental plans to enhance the purchasing of the UK housing for the first timers;
however they come with various clauses regarding the interest rate (Pwc.co.uk 2018). If the
interest rate is comparatively higher then it will influence most of the home buyers to shift to
the renting rather than owning house (Soaita et al. 2017). On the contrary, if there is
reduction in the interest rate, then it will reduce the price as well as affordability factor too.

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With enhanced scope for reduced interest rate, the housing sector can attract higher number
of buyers.
Consumer confidence:
Over the time during the selected time frame there have been various price changes in
the UK housing sector. Fluctuation in the price range can affect the consumer confidence
through direct relation and thus with the fluctuation in the UK housing market, consumer
confidence has failed to grow (Gallent et al. 2017). From the figure 4, it can be seen that
rapid fluctuation had taken place over the time from 2006 to 2016 and the major fluctuation
occurred during the 2008 due to GFC (Nationwide.co.uk 2018). Since then government has
taken various corrective measures to gauge the situation and it has been reflected through the
price change line in figure 4. Upward price change curve shows that there has been rising
demand in the market and rising demand entails that there is positive consumer confidence on
the UK housing sector.
2006 Jan 2007 Jan 2008 Jan 2009 Jan 2010 Jan 2011 Jan 2012 Jan 2013 Jan 2014 Jan 2015 Jan 2016 Jan
-15.0
-10.0
-5.0
0.0
5.0
10.0
15.0
Figure 4: UK annual housing price change rate from 2006 to 2016
Source: (Created by Author)

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Affordability range:
Affordability is one of the major indexes that determine the price of the houses. If the
affordability is good, then it would help the consumers to buy houses and if the country or
place is not affordable, then number of houses being sold will also be less (Gopalan and
Venkataraman 2015).
From figure 5, it can be seen that affordability of the housing in the UK has fallen over the
time. During 2007, houses in the country were highly affordable, where during 2006;
affordability has felt to the half of initial situation (Nationwide.co.uk 2018). This highlights
the price of the houses in the country has been enhanced.
2006 Q1
2006 Q3
2007 Q1
2007 Q3
2008 Q1
2008 Q3
2009 Q1
2009 Q3
2010 Q1
2010 Q3
2011 Q1
2011 Q3
2012 Q1
2012 Q3
2013 Q1
2013 Q3
2014 Q1
2014 Q3
2015 Q1
2015 Q3
2016 Q1
2016 Q3
80.0
90.0
100.0
110.0
120.0
130.0
140.0
Figure 5: UK housing affordability from 2006 to 2016
Source: (Created by Author)
Demand of the houses:
Demand is the major factor that determines the price. With rise in demand it can be
envisaged that the price will rise and if there is fall in the demand, then it will portray that
there is fall in price (Keynes 2016). As from the figure 6 can be seen, there was various

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fluctuation in the dwelling population in the UK, which can be utilized to draw the aggregate
demand of the market. With upward sloping dwelling line, it can be seen that there is a rise in
the number of population in the country and with rise in the population there will also be rise
in the demand of the houses too.
2006 Jan 2007 Jan 2008 Jan 2009 Jan 2010 Jan 2011 Jan 2012 Jan 2013 Jan 2014 Jan 2015 Jan 2016 Jan
140.0
150.0
160.0
170.0
180.0
190.0
200.0
210.0
220.0
230.0
Figure 6: UK all dwellings from 2006 to 2016
Source: (Created by Author)
Figure 7 clarifies the phenomena again as it highlights the housing demand over the
time in UK. According to the graph in figure placed below, there were various fluctuations in
the UK housing prices that have been originated from the rise in demand of the houses in the
country. Highest amount of fluctuation was taken place during GFC and it soon overcomes
the inflation to become where it is now.

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2006 Jan
2006 Jun
2006 Nov
2007 Apr
2007 Sep
2008 Feb
2008 Jul
2008 Dec
2009 May
2009 Oct
2010 Mar
2010 Aug
2011 Jan
2011 Jun
2011 Nov
2012 Apr
2012 Sep
2013 Feb
2013 Jul
2013 Dec
2014 May
2014 Oct
2015 Mar
2015 Aug
2016 Jan
-20.0
-15.0
-10.0
-5.0
0.0
5.0
10.0
15.0
First-time buyer UK Former owner-occupier UK
Figure 7: UK housing demand change from 2006 to 2016
Source: (Created by Author)
Impact of governmental schemes on housing market in UK:
Over the year recession in the UK along with the lower employment level housing
industry has been eventually fading out. Several economic reviews have argued that
government need to take radical steps in order to gauge the present deteriorating market
scenario of the housing sector (Hilber 2015). Considering the review, UK government over
the time has initiated various national plans, which are aimed to provide boost to the
country’s housing sector. Among many, some of the housing schemes from the government
are as follows:
Help to Buy:
It is basically introduced by the UK government for the first time buyers who are
short on deposit. This scheme is sub divided into two different schemes, which are equity
loan scheme and the Mortgage guarantee scheme. According the Equity loan scheme, price of
the house must be more than 600,000 Euro and to have this ready to move in house, the buyer
can borrow 20% of the total amount (Nationwide.co.uk 2018). In addition to this if the
resident is living in London, and then the person can even borrow 40% of total hosing price.

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Mortgage to buy scheme provide full coverage of the purchasers’ mortgage in case he or she
fails to repay this due to unavoidable circumstances (Vandenbussche et al. 2015).
Shared ownership:
This scheme was introduced by the government in order to provide support to the
families whose annual income is less than 80,000 Euro (Pwc.co.uk 2018). In order to achieve
this scheme, the purchaser has to provide mortgage to the government so that in case of any
mishap repayment for the house’s share can be done.
Starter Homes:
This is another ambitious project by the UK government to woo the young generation
of the country. This plan articulated that any UK citizen who is 40 years old and the
discounted price should not cross the 250, 00 Euro (Nationwide.co.uk 2018)
Each of these affordable housing schemes is made for the first time home buyers and they
come with different features. According to the governmental figure, these schemes has
provided vast amount of effect on the UK first time home buyers. For instance it has been
stated by the government stats that during 2017 there were 365,000 first time home buyers in
total. Compared to the 2016 figure, number of home buyers during the 2017 has enhanced by
7.4% (Nationwide.co.uk 2018). According to Pwc.co.uk (2018), first time home buyers are of
30 years and they have average income of more than 41,000 GBP. According to the Duranton
et al. (2015), it has been seen that the number of first time home buyers has reached to its
highest level in the ongoing decade that aids to envisage the real effect of the housing
programs taken by the UK government during this decade. Office for National Statistics
report indicated that housing price inflation has been 5.2% leading the average price of new
house around 226,760 GBP.
Well, it has been good to see that the governmental schemes for the first time home
buyers has really affected the country’s housing sector; however, there is dark side too.

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According to the McCrone and Stephens (2017), with the aid of the government, more and
more people are willing to buy house for the first time, which is causing a rise in aggregate
demand. General economic theory argues that, if there is rise in the demand, then it will
enhance the price of the goods or services. In the same fashion, with rise in the demand of the
UK housing sector it has enhanced the rise in the price of the house making it beyond the
scope of buying for the first timers. Thus, though there is initiative by the government to
provide stimuli to the UK housing sector, yet they are being crowded out due to rise in the
price. However, it has been observed that there has been huge surge in the housing demand
that has been influenced by the various factors like supply of the houses, price affordability
and the government’s initiative to enhance the housing for the firm timers. To construct a
clear outcome regarding the UK housing schemes by the government it can be state that the
effect is subjective in nature. It has enhanced the affordability for some people and on the
other hand it has crowded out the option to have the price rebate in the case of purchasing a
house.
Conclusion:
The report was aimed to trace the various influential factors that have caused
fluctuation in the UK housing market. In addition to this, the report has tried to assess the
effect of recent governmental policies on overall effect of the welfare of the country’s
population. Through detailed analysis of the UK housing market it has been found that
various influential factors are there that has caused the fluctuation in the UK housing market.
One of the major factors that have caused the recent fluctuation in the UK housing market is
the rise in housing price in the country over the various regions. In addition to this, falling
affordability of having a house for the first time buyers has substantially fell during the 2006
to 2016 timeframe. Amalgamation of the rise in demand leading to price rise of the houses in
the country has caused the fluctuation; however several governmental policies have eased the

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situation. It has been found that the governmental program initially used to reduce the price
of the houses; however, lower price level has caused higher demand leading to rise in price of
the houses in the country once again. Thus, though there has been effort from the government
to gauge the situation, however they have been crowded out due to the rise in the demand of
the houses in the UK. To conclude, it can be stated that over the time there has been various
fluctuation in the UK housing market, and it has to some extent enhanced the welfare level
through government housing policies; however whether it has totally attained the desired
outcome or not, it is subjective.

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economics. Elsevier.
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and UK policies. Routledge.
Gopalan, K. and Venkataraman, M., 2015. Affordable housing: Policy and practice in
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Hilber, C.A., 2015. UK Housing and Planning Policies: the evidence from economic
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Keynes, J.M., 2016. General theory of employment, interest and money. Atlantic Publishers
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timeseries/mgsx/lms [Accessed 29 Mar. 2018].
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Business (pp. 327-350). Springer, Dordrecht.
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Taylor, C., 2016. UK Balance of Payments, The Pink Book: 2016.
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